Don’t Panic: SBA Affiliation Rule Changes

Demystifying Franchise Affiliation and FDD Review for Bankers: Why The Recent SBA Changes Will Not Stop Franchise Funding.

Tenet Financial Group, a leading financial services provider specializing in small business lending, is closely monitoring the recent changes to the Affiliation Rule announced by the Small Business Administration (SBA). As a key player in the small business lending industry, Tenet Financial Group recognizes the significance of these changes and their potential impact on franchise lending and small business lending as a whole. 

The final rule, titled “Affiliation and Lending Criteria for the SBA Business Loan Programs,” was published in the Federal Register on April 10, 2023, and will take effect on May 11, 2023 (RIN 3245-AH87). The changes made by the SBA to the Affiliation Rule are designed to simplify determining affiliation for all programs under the SBA Business Loan Programs umbrella. 

Tenet Financial Group is committed to staying informed and providing updated guidance to its clients and partners in navigating these changes and ensuring compliance with the updated changes in SBA lending.

The key changes to the affiliation rule are as follows:

  • Removal of determination of eligibility from management and control, franchise or licensing agreements, and identity of interest
  • Removal of the change of ownership requirement of a complete change of ownership, which will now allow for partial ownership changes.
  • Removal of the requirement for hazard insurance for loans up to $500,000 (an increase from the previous loan amount of up to $150,000)

This means affiliation determination will be based solely on ownership as follows:

  • When the Applicant owns more than 50 percent of another business, the Applicant and the other business are affiliated.
  • When the Applicant does not have an owner that owns more than 50 percent of the Applicant, if an owner of 20 percent or more of the Applicant is a business that operates in the same 3-digit NAICS subsector as the Applicant, the Applicant and the owner are affiliated.
  • When the Applicant does not have an owner that owns more than 50 percent of the Applicant if an owner of 20 percent or more of the Applicant also owns more than 50 percent of another business entity that operates in the same 3-digit NAICS subsector as the Applicant, the Applicant and the owner’s other business entity are affiliated.
  • Ownership interests of spouses and minor children must be combined when determining the amount of ownership interest.
  • Stock options, convertible securities, and agreements to merge – SBA considers present effect of such agreements on the ownership of the entity.

Although anticipated, these rules will spell changes in the small business and franchise lending community. Within the franchise lending community specifically, Tenet Financial Group is confident that business will continue as usual with its franchise lending partners.

Tenet Financial Group’s Director of Development Samuel Phelps said, “We had anticipated the changes to the affiliation rule, and with the sunsetting of the franchise directory, we have already made preparations with our lenders.”  Phelps continued, “The franchise directory has been around since 2018, but franchise lending has long been a staple for SBA lending long before the directory came into existence. Our lenders have been prepared, and we continue to fund franchisees through SBA loans. We will continue to operate like we once did before the directory was used.”

“Additionally, the streamlining of the eligibility process will be somewhat of a win for our lenders that specialize in franchise lending. They are well suited to handle the change, and with the loosening of the affiliation tests, it should be a benefit for our small business owners seeking funding through SBA lending.”  

Phelps went on to state Tenet Financial Group had already ensured processes were in place with its lending partners long before the affiliation rules were final, as it has been rumored for some time that the franchise directory would be ending with the most recent SBA updates. Phelps specifically is a former banker with over a decade of experience in SBA lending who currently oversees the SBA lending and consulting divisions at Tenet Financial Group.

As a leader in franchise and small business funding solutions, Tenet Financial Group offers specialized services in 401(k) ROBS and small business funding. Our experienced consultant, lending, and plan administration teams prioritize simplicity, transparency, and honesty in delivering our services. We work closely with our clients to find funding options tailored to their individual needs.

At Tenet Financial Group, we value our customers and are committed to providing exceptional service and support. Whether you have questions, or feedback, or need assistance with our services, our team is always ready to help. Thank you for considering us as your preferred service provider. Contact us today at or reach us at (817) 381-8907 to experience our commitment to excellence firsthand.

Samuel Phelps
Director of Development
Tenet Financial Group
109 Larson Lane, Suite 200
Aledo, TX 76008
(817) 381-8907